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Old 25.08.2021, 20:53
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Pillas: Employed vs Independent vs Both

Hello,


I am currently an independent (in Vaud) and I managed to finally somewhat understand the tax part of it.
Recently, I have been proposed to join a company on a payroll and things are becoming messy again:


I know that the main difference between employed and independent is that employed can contribute into their 2nd pillar through the employer (dunno the percentage and possibly without any cap) and only put up to ~7K/year into their 3rd pillar. While an independent can only put into their 3rd but with a higher cap (~34K/year).


Now, my questions:


1. If one could choose to either get X,XX CHF as an employed worker or getting X,XX CHF+Benefits in Cash (i.e. higher pay), which one would be the most convenient overall?

2. If I were to take that salaried job, how would it work with my taxes? Do I get to put into the 2nd pillar AND have a higher cap on the 3rd pillar, or do I lose the benefits that I used to get from being an independent?

3. Do I "simply" fill in the tax declaration for both salaried and independent as if they were 2 distinct things? Or are there other considerations?


Basically I'd like to get my head around on which type of employment is better (salaried vs independent) and how it works if one has both a salaried gig AND work as an independent.
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  #2  
Old 26.08.2021, 05:51
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Re: Pillas: Employed vs Independent vs Both

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Hello,


I am currently an independent (in Vaud) and I managed to finally somewhat understand the tax part of it.
Recently, I have been proposed to join a company on a payroll and things are becoming messy again:


I know that the main difference between employed and independent is that employed can contribute into their 2nd pillar through the employer (dunno the percentage and possibly without any cap) and only put up to ~7K/year into their 3rd pillar. While an independent can only put into their 3rd but with a higher cap (~34K/year).


Now, my questions:


1. If one could choose to either get X,XX CHF as an employed worker or getting X,XX CHF+Benefits in Cash (i.e. higher pay), which one would be the most convenient overall?

2. If I were to take that salaried job, how would it work with my taxes? Do I get to put into the 2nd pillar AND have a higher cap on the 3rd pillar, or do I lose the benefits that I used to get from being an independent?

3. Do I "simply" fill in the tax declaration for both salaried and independent as if they were 2 distinct things? Or are there other considerations?


Basically I'd like to get my head around on which type of employment is better (salaried vs independent) and how it works if one has both a salaried gig AND work as an independent.
1. 2nd pillar is hugely inferior to the 3rd pillar as in most company schemes you are simply subsidising the existing pensioners. Id invest the minimum amount you can and withdraw at every opportunity if you are a home owner. It's more of a Ponzi scheme than a personal pension plan. So from a pension perspective contracting is better, provided you get paid enough to pay in your employer contribution as well as the employee part.

2. If you work and are contracting, then you can only put the c. 7k in the pillar 3a.

3. Yes. Although I don't know much about the finer Details
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Old 26.08.2021, 10:42
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Re: Pillas: Employed vs Independent vs Both

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1. 2nd pillar is hugely inferior to the 3rd pillar as in most company schemes you are simply subsidising the existing pensioners. Id invest the minimum amount you can and withdraw at every opportunity if you are a home owner. It's more of a Ponzi scheme than a personal pension plan. So from a pension perspective contracting is better, provided you get paid enough to pay in your employer contribution as well as the employee part.

2. If you work and are contracting, then you can only put the c. 7k in the pillar 3a.

3. Yes. Although I don't know much about the finer Details

Thanks! So if I could max out the 3rd pillar as independent, it would be much better than employed and putting towards the 2nd. Great to know!


EDIT: Aren't the contributions both deducted? 2nd pillar is deducted straight from the earnings while the 3rd pillar is deducted during the tax declaration?
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Old 26.08.2021, 11:23
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Re: Pillas: Employed vs Independent vs Both

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Thanks! So if I could max out the 3rd pillar as independent, it would be much better than employed and putting towards the 2nd. Great to know!


EDIT: Aren't the contributions both deducted? 2nd pillar is deducted straight from the earnings while the 3rd pillar is deducted during the tax declaration?
From a tax perspective they are the same. However your pillar 2 in most cases will grow at 1% a year. You can invest 100% in shares with pillar 3 - average return would be more like 5-10%.

Finpension is the best option for pillar 3
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Old 26.08.2021, 12:09
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Re: Pillas: Employed vs Independent vs Both

I agree with HVF and would take the same approach as he recommends. Just to point out other differences, the right solution may depend on your personal circumstances

-In 2P your employer pays into the scheme as well as you and the contribution is not normally included in quoted salary figures

-2P may offer generous insurance against death or invalidity, 3P doesn't -but the 2P plan may charge you for this

-If you retire whilst still in a 2P plan you can choose have an annuity at the end (e.g. 5% of saved amount per year for life) which is not possible with 3P. So with 3P you assume the risk of investment return and need to budget accordingly

-2P may be lower return but it is usually also lower risk since backed by an employer and invested in lower risk assets

Another factor is that if you are employed you pay into unemployment insurance and then are entitled to benefits from the insurance scheme if you lose your job
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Old 26.08.2021, 12:16
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Re: Pillas: Employed vs Independent vs Both

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Another factor is that if you are employed you pay into unemployment insurance and then are entitled to benefits from the insurance scheme if you lose your job

Thanks for mentioning this. A long stay on unemployment compensation would likely outweigh any pension difference benefit.
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